Social Security Battle Pits Bush Against Democrats, Own Party

For Immediate Release:

July 27, 2005

Contact:

By Jackie Calmes

Wall Street Journal

Separate White House and congressional events yesterday spotlighted the deep divisions over changing Social Security, laying the battle lines for a fall fight that pits President Bush not only against Democrats but also against some leaders in his own party.

Mr. Bush, in a pep talk for a few hundred college students and business backers, said he is "more committed than ever" to creating personal accounts from Social Security and reducing future scheduled benefits so the program is permanently solvent, according to several attendees. He was introduced by Treasury Secretary John Snow, who insisted that any legislation must provide for long-term solvency.

But at the Capitol, Republicans were promoting their alternative, and neither the House nor Senate versions would cut benefits in order to make Social Security solvent or carve out private accounts, as Mr. Bush seeks.

They would earmark the final decade of surpluses from Social Security payroll taxes to create smaller private accounts instead of using them to fund other programs. Mindful of next year's elections, skittish Republicans are rejecting Mr. Bush's call to shave future benefits for all but the poorest retirees, and instead playing to many voters' belief that Washington is "raiding" Social Security funds.

Social Security gets credit each year in Treasury bonds for the amount of payroll taxes left after benefits are paid, and the surpluses make the overall federal deficit look smaller. Until Social Security starts running annual deficits in 2017, the bills would dedicate the surpluses to bonds for individuals' accounts. Account-holders' regular retirement benefits would be cut to offset the earmarked taxes. According to government actuaries, the change would hasten Social Security's insolvency, now projected as 2041, and the House version would increase federal debt.

Meanwhile, House Democratic leaders, opposed to changing Social Security but determined to show they are for something, unveiled a package of proposals to expand existing retirement savings programs, notably employer-provided 401(k) accounts. They wanted to pre-empt the House Ways and Means Committee chairman, Republican Rep. Bill Thomas of California, who is expected to include some Democrat-sponsored proposals in legislation he is drafting for September to address Social Security and retirement security more broadly. The Democrats' core proposal would give an even match for the first $1,000 deposited in an IRA or 401(k).

Yesterday's events were timed to define positions before Congress breaks for its August recess, with an eye to fall action. Few people on any side of the issue expect final action this year.

House Republicans acknowledged that their proposal doesn't meet Mr. Bush's demands. "Social Security reform is an idea whose time has come," said Rep. Mike Pence of Indiana. But "the reality is the American people haven't reached a consensus yet about that elective surgery."

Despite the signals from Mr. Bush and his advisers of their commitment to making Social Security solvent, Republican Rep. Paul Ryan of Wisconsin said he is confident Mr. Bush would sign the Republicans' bill. But Tita Freeman, communications director for the Business Roundtable, who attended the president's rally, said, "While personal accounts are one approach to the final solution" for Social Security, "we have to see something about solvency in there."